Investment Assignment The funds below are available for some employees. Choose any or all funds in 5 per cent increment according to the instructions at the bottom of page two. Cash – Money Market...

Investment Portfolio 1
Investment Portfolio
Investment Portfolio 2
Introduction:
Investment is one of the most important aspect that is needed which helps in fulfilling different
future needs of the investor. There are different assets in which an investor can invest so as to
have a future benefits from the required investment. Every investment entails an amount of some
risk which is associated. Investment helps in promising the return of the original amount along
with an adequate return. So, investment is very important as it helps in fulfilling different future
needs of the investor.
The main objective of this report focuses on building an investment portfolio of for different age
groups with different kinds of investments.
Investor Profile and Policy statement:
Investment is called as ‘the current commitment of dollars for a period of time in order to derive
future payments that will compensate the investor for (1) the time the funds are committed, (2)
the expected rate of inflation, and (3) the uncertainty of the future payments’ (Frank Reliey). An
investor can be said a person who is making an investment an investor can be an individual, a
government body, or a corporation. Investments can be done in different stocks, commodities,
bonds, or real estate. The investor focuses on trading the known amount of dollar in the current
date with an anticipation of a getting a future benefit in the future.
To design the investment portfolio of it is important to analyze different aspects which are the
time for which the funds are being committed for the future needs, the expected rate of inflation
and the expected payment that is likely to receive in the future.
Investment philosophy and market perspective:
The main aim of the investment is to earn maximum returns on the portfolio constructed, one
needs to have certain perspectives and market assumptions.
Insurance: It is important to have a life insurance cover of an individual especially once he is
married. Insurance will also help in serving different purposes which can especially benefit once
the investor is retired as after retirement he can receive the surrender value of insurance taken.
We would recommend investor to opt for universal and variable life insurance along with the
Investment Portfolio 3
health insurance. One he is married the same plan must be taken up for his wife. The investor
should also focus on the insurance of the properties held
Cash Reserves: It is important to keep some cash as savings which will help in overcoming
unforeseen emergencies and expenses, good investment opportunities. As the benchmark the
investor should have about 30% of cash reserve which will take into consideration the cash
reserve in the money market securities and mutual funds as they are readily converted in cash
and has minimum risk associated with the same.
Considering this, the time horizon for investment will be a little long along with high risk
investment which will help in attaining above average return on investment.
Policy Statement:
Investor Objective: Invest in different moderate to high risk investments with a strong focus on
investment in equity which will include foreign as well as domestic equity exposure which will
range approximately 70 percent of the total portfolio along with 30 percent of investment in cash
market or the short term investments which will include the money market securities which will
help in providing adequate returns.
Investment Constraints:
Liquidity needs – the liquidity need of investor with high value asset holding will be little higher
as he will have high tax obligation as he have huge inherited wealth which attracts tax which
needs to be paid in cash.
Time horizon: There will be different time horizon for the investor one time horizon will last for
five years others will last for more than ten years. As there is high need of liquid cash some
investment will be done for short term as well which will help in meeting his short term needs.
Tax concerns: the tax rate that will be levied will be approximate 35% considering the returns
from the particular investment.
Legal and Regulatory factors: It is important for the investor to take into account insider trading
prohibitions and should focus on building client advisor relationship.
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Market assumptions:
Considering the market we can say that the economy will be stable with a nominal interest rate
prevailing in the market, apart from this the risk beta associated with the company should be
analyzed on the basis of the expected growth of the company,
Capital market expectations for stock and bond funds
Stock Bond
Scenario Probability Rate of return Return Rate of return Return
Severe Recession 0.05 -37 -1.85 -9 -0.45
Mild recession 0.25 -11 -2.75 15 3.75
Normal growth 0.4 14 5.6 8 3.2
Boom 0.3 30 9 -5 -1.5
Expected return 1 10 5
Variance 347.1 68.4
Standard Deviation 18.63 8.27
Investment Process:
The portfolio of Investor can be said to be a collection of different investment assets. After
establishing a portfolio the portfolio can be updates or rebalanced easily by buying new
securities and selling the existing securities. The Top-down portfolio construction generally
starts with the allocation of assets followed by security analysis. Considering the sharpe ratio
analysis, standard deviation and other statistical factors we can analyze that the best investment
area is Bonds, large stock company and small stock company.
It is important to diversify your portfolio, so it is advised to focus on investing in different assets.
Investment Portfolio 5
Rebalancing Strategies:
The rebalancing strategy will focus having adequate risk on the selected portfolio. A strong focus
will given on calendar rebalancing, which will involve in holding the portfolio investment on the
basis of the predetermined time intervals and adjusting to the original allocation at the given
frequency. This rebalancing strategy will help in mitigating the risk, the other rebalancing
strategy used is the asset allocation strategy, Asset allocation can be said as the process which
focuses on analyzing the strategy for distributing the wealth of the investor among different
countries and classes which will help in providing the best returns by strongly...